TSMC Faces Bearish Trends Amid Geopolitical Tensions; Long-term Growth Potential Remains Strong

Technical Analysis

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) closed at $151.13 on April 10, 2025, experiencing a significant decline of 4.80% from the previous day. The stock’s recent performance is reinforced by technical indicators suggesting bearish momentum. The recent drop has pushed TSM's RSI to 34, placing it near oversold territory, indicative of potential downward pressure but also hinting at a possible bounce back if the stock remains technically oversold. The MACD is negative at -4.60, which corroborates the ongoing bearish trend in the short term. Notably, TSM has recently breached its 50 and 200-day moving averages, standing at $182.45 and $184.41 respectively, indicating a possible continuation of its downtrend. The share price is approaching a support level at $146.80, with resistance at $158.75 in the near term.

A technical pattern of note is the recent crossover suggesting a "Death Cross," where the short-term moving average falls below the long-term moving average, aligning with negative investor sentiment.

Fundamental Analysis

Fundamentally, TSM holds a robust position in the semiconductor industry, as evidenced by a solid market capitalization of approximately $783.74 billion. Despite the recent price drop, TSMC's earnings prospects remain optimistic, thanks to escalating demand in AI applications and continuous technology advancements. The current P/E ratio of 22.03 is within a reasonable range for a major player in the semiconductor space, suggesting fair valuations relative to earnings. The company’s EPS stands at $6.86, reflecting strong profitability. With an upcoming earnings announcement on April 17, the market will be closely watching for updates on how geopolitical factors and tariffs influence TSMC's performance. Its trailing twelve-month dividend yield is 1.30%, offering passive income potential alongside growth.

The DCF analysis places TSM's intrinsic value at $110.69, indicating the stock is currently trading above its intrinsic value, suggesting potential overvaluation based on discounted cash flow models. Analyst ratings maintain a general consensus of "Buy," indicating confidence in long-term growth, despite short-term headwinds. The analyst price targets vary, with a consensus target of $183.75, providing an upper movement potential assuming geopolitical issues are mitigated.

News and Market Sentiment

Recent news highlights both challenges and opportunities. The announcement of potential tariffs from the US administration has added downward pressure on TSMC's stock price, contributing to the sell-off. However, the positive aspect lies in the surging AI demand which continues to support the company’s revenue growth and long-term strategic positioning in the high-tech industry. Publications emphasize TSMC's role as a critical player in the AI sector, suggesting enduring importance despite market volatility.

Outlook for Next Trading Day and Upcoming Week

For the next trading day, TSM's stock may experience continued volatility due to prevailing negative sentiment and geopolitical uncertainty with tariffs potentially impacting demand forecasts. Given the technical support level at $146.80, a test or breakthrough of this level could provide a pivot point for price direction. For the upcoming week, volatility is expected to persist as investors anticipate the earnings announcement and potential clarifications regarding the impact of trade tariffs.

Long-Term Investment Potential

Despite current headwinds, TSMC's position in the semiconductor market, bolstered by investment in R&D and strategic leadership in microchip manufacturing, underpins strong long-term growth prospects. The intrinsic value analysis suggests a degree of overvaluation, yet future growth opportunities, including AI and 5G advancements, fortify its investment thesis.

Overall Evaluation

In conclusion, while short-term uncertainties due to geopolitical tensions and technical indicators indicate potential challenges, TSM presents a ‘Hold’ based on its solid fundamentals, industry positioning, and potential to capitalize on long-term technological trends. Conservative investors may await further clarity on tariff impacts and upcoming earnings for reassessment.